Housing Starts Went Up in May,
Indicating a Moderate Slowdown

Housing starts increased for the first time since January last month, suggesting that the U.S. housing sector, though moderating, is doing so in an orderly fashion despite rising interest rates.

"Although we believe the housing market has clearly peaked, we expect a moderation in activity rather than a sharp decline, and we view this report as supporting this thesis," Bear Stearns U.S. Economics said in a research note.

May housing starts rose 5% to a seasonally adjusted 1.957 million annual rate, the Commerce Department said Tuesday. Housing starts in April dropped 5.5% to a 1.863 million rate, which was revised up from an original estimate of a 7.4% decline to 1.849 million.

May building permits, which are seen as an indicator of future activity, fell slightly. Housing starts were down 3.8% from May 2005 levels. Building permits were 8.5% lower from a year earlier.

Last month's housing starts data were well above Wall Street expectations. The median estimate of 15 economists surveyed by Dow Jones and CNBC had housing starts up 1.7% to a 1.88 million annual rate.

Tuesday's housing figures come on the heels of data showing building sentiment continues to wane.

The latest National Association of Home Builders confidence index fell four points to an 11-year low in June. NAHB expects single-family housing starts in 2006 to decline about 9% versus 2005.

According to the Federal Reserve's latest studies of regional economies, known as the "beige book" reports, "residential real estate markets continued to cool across much of the country -- with most districts reporting slower homebuilding and sales of existing homes."

With core inflation rising and economic figures showing continued growth, Fed officials are widely expected to raise interest rates a 17th-straight time, to 5.25%, when it meets in late June.

Tuesday's government report on housing starts showed permits for future building dropped by 2.1% in May to a 1.932 million annual rate. Permits had been projected by economists to fall 2% to 1.933 million.

Regionally, home construction last month rose 8.5% to 960,000 in the South and jumped 15.8% to 520,000 units in the West. Starts climbed by 1.7% to 183,000 units in the Northeast and dropped 15.8% to 294,000 units in the Midwest.

Breaking down the rate of 1.957 million overall U.S. starts in May, single-family housing rose 2.1% to a rate of 1.586 million units, while starts of housing with two or more units increased by 19.7% to 371,000 units. Within that category of two or more units, groundbreakings of homes with five or more units -- or multi-family -- increased 25.4% to 321,000 units.

Nationwide, an estimated 189,300 houses were started in May based on figures unadjusted for seasonal factors. An estimated 182,700 building permits were issued last month, also based on unadjusted figures.

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